Five Social Conditions That Could Collapse The U.S. Economic System

Column

on March 30 2012 10:51 PM

In a sense, the controversial radio talk-show host and former Fox News commentator Glenn Beck had it right: The United States could be headed for a major period of social unrest -- or worse -- but not for the reasons Beck stated.

Beck blamed the federal government. Or President Barack Obama. Or former House Speaker Nancy Pelosi. Or the Democrats. Or liberals. Or unions. Or George Soros. Or Woodrow Wilson. Or the builders of Rockefeller Center. Or all of the aforementioned, plus the public sector, for getting in the way, and preventing what the free market is capable of doing.

Well, friends, the reality is: The free market has been doing what it's capable of doing, and it will continue to do what it's capable of doing, and the result, at least for a while, is going to be more structural changes to the U.S. economy, and more dislocation. Dislocation is a fancy policy wonk word for job losses.

Globalization -- basically, free markets, international trade, and the transfer of jobs to lower-labor-cost production centers -- is a system that has made almost all U.S-based multinational corporations (MNCs) massively profitable and successful. U.S. corporations are sitting on $2 trillion in cash -- in cash alone(!) -- but globalization and the enormous structural changes accompanying it has also led to four of the five problems that, if not addressed, could undermine the U.S. economic system itself.

Below is a summary of each condition, from least to most capable, of triggering a collapse of the U.S. economic system:

5) Poverty / Increase In No-Stake Citizens. Poverty, a large and generations-long underclass, massive income disparity between the Caucasian and nonwhite population groups, inadequate job training, and a band-aid social-welfare state, have created a social condition in which roughly 40 percent of the electorate currently has no stake in the U.S. economic system, corporate capitalism.

For these citizens, the work environment is a place that exploits them and abuses them -- treats them as mere production beings, even as it undervalues their labor, and society is a place that marginalizes them. They have been alienated by corporate capitalism. For them, corporate capitalism is not a blessing, it's the curse. As such, they would have no qualms with seeing the downfall of corporate capitalism -- and its supporting institutions -- and its replacement by an economic system that treats them with dignity, that pays them a living wage, and whose means of production serve the societal interest, not the interests of the uber-rich and upper-income groups. For many in this group, that economic system is democratic socialism.

Further, if the enormous social problems listed above increase and an educated, organized interest group/coalition marshals these citizens into an effective, potent political force, they could put unprecedented pressure on U.S. institutions, including massive social unrest. A period of social chaos (or worse) could ensue, bringing the U.S. economy to a virtual standstill, including disruption of the energy supply and food delivery.

New York University Economics Professor Nouriel Dr. Doom Roubini, who accurately predicted the bursting of the housing bubble and financial crisis four years ago, said last August that unless public officials invest in a new, smarter social safety net to restore a balance between the free market and public goods, the kind of social unrest seen in the Arab world, Greece, and the United Kingdom would hit other advanced economies and emerging markets.

Is the Occupy Wall Street protest movement seeking economic and fiscal reform the start of this social unrest?

4) Aging Population. The baby boom generation, born between 1946 and 1964, the largest demographic group in the United States, is starting to retire, and, historically, as adults age, they buy fewer consumer goods and more health-care services. This will have a double-dose contraction impact on the U.S. economy, regardless of whether the U.S. health-care reform law mandating universal coverage is struck down or upheld by the U.S. Supreme Court. Consumer spending, which accounts for about two-thirds of U.S. gross domestic product, will struggle to grow as the boomers continue to retire, weighing on GDP growth. At the same time, entitlement spending -- especially for Medicare -- will take up a larger portion of federal spending -- diverting resources that could be used for other public goods and needs: child education, infrastructure rebuilding/development, and research and technology. The net result would be a U.S. economy that both grows too slowly to provide enough jobs and one that doesn't have enough federal revenue to meet social safety net needs. Further the U.S. Health Care Reform Act will slow Medicare spending growth, but it probably will not eliminate it.

Further, faced with a smaller pie, pressures could build to divvy-up the pie better, including efforts aimed at: 1) achieving federal ownership of natural resources (oil, natural gas, electric); 2) creating a revenue-sharing arrangement between multinational corporations and society; and 3) achieving democratic, public stewardship of the economy -- an economy whose major decisions are determined by the people, democratically, not by corporate boards of directors.

3) Outsourcing. Globalization has substantially increased outsourcing. If emerging markets, and in particular, China and India, continue to trigger the transfer of jobs out of higher labor-cost production centers such as the United States, the U.S. could see unacceptably high levels of unemployment linger for even longer than current projections of 7 percent unemployment through at least 2014. Also, if outsourcing continues at its current pace, job growth could remain inadequate.

2) Frugal Consumers. With wages and median incomes stagnant in many job segments, Americans have adopted a new stance (for them): dramatically cutting discretionary and needless spending and increasing saving. The trend is so cross-cutting that it's led to a downsizing in the retail and restaurant sectors. To gauge the extent of the frugal consumer trend, visit a local shopping plaza and/or indoor shopping mall. Note the store vacancies.

To be sure, a savings rate at or near 5-7 percent per year is a good thing for a nation in terms of capital formation. The problem is, if it rises above that level and too many people save too much for decades, it will act as a brake on GDP growth. Moreover, so far during the financial crisis era, it looks like the frugal consumer trend is a long-term decision by Americans to consume less, not a short-term fad.

Another frugal consumer trend downside is that the U.S. economy is predicated on consumers spending a lot: Such a pronounced, long-term frugality trend would, again, weigh on job growth, increasing social support costs, and accompanying social/economic problems.

1) Wage Stagnation / Unemployment. Of all the factors, or threats to corporate capitalism  -- the U.S.'s economic system -- this is the greatest.

Simply, the whole point of the U.S. economic system is: 1) profits and 2) jobs. It's the reason Americans tolerate its harshness -- the reason Americans work so hard, don't have a national law guaranteeing six-weeks of paid vacation like their brothers and sisters in France, the reason you don't have an adequate public pension system like Germany, or other social supports for health care and education found in social-welfare-system-adequate Western Europe.

However, if you take either profits or jobs away, the U.S. economic system, corporate capitalism, experiences stress. Take them both away, and a systemic crisis occurs.

No one knows how the American system of corporate capitalism will respond this time to a crisis -- an era of unprecedented wealth, material abundance, opulence, conspicuous consumption and technological advance, amid enormous income inequality, poverty and dislocation -- if the unemployment rate doesn't return to normal, low-joblessness levels.

At The Sign-Post Up Ahead ...

Poverty. An increase in no-stake citizens. An aging population. Outsourcing. Frugal consumers. Wage stagnation. Unemployment. Each, to varying degrees, poses a threat to the U.S. economic system.

The good news is ... one solution can address all of these problems/threats: massive job growth -- which is why public officials and corporate CEOs need to find ways -- both public and private -- to keep job growth -- which has averaged about 200,000 new jobs per month over the past three months -- trending higher, to 300,000 new jobs per month. In short, to avert a crisis the U.S. needs to create a job for every person seeking work.

Must Read:  NYU's Nouriel 'Dr. Doom' Roubini: Social Unrest Will Spread

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